lunes, 25 de junio de 2018

China's Belt and Road Initiative, Five Years In

Despite its success in the developing world, Beijing's approach to the
Belt and Road Initiative has raised concerns over corrupt practices and
financial sustainability in several recipient countries.
Beijing's ambitious outreach, and its hidden agenda for strategic
expansion riding on the initiative, will continue to fuel skepticism,
suspicions and resistance among core powers.
Ultimately, given the sheer scale of the Belt and Road Initiative, snags, delays and cancellations are to be expected.

Since it began in 2013, the Belt and Road Initiative has become the
centerpiece of China's domestic and foreign policy, jump-starting
diplomatic, financial and commercial cooperation between China and more
than 70 neighboring countries across the Eurasian landmass. When
complete, the massive infrastructure project will increase China's
overland and maritime connectivity to other regions, extending its trade
and technology to new markets. The initiative also gives Beijing the
opportunity to offload some of its excessive industrial capability,
facilitating the necessary domestic industrial reforms it needs to
establish a more stable economy.

In the past five years, China has spent at least $34 billion on the Belt
and Road Initiative, focusing primarily on connectivity projects such
as railways, ports, energy pipelines and grids. And though China has
made major progress toward its long-term goals, it has also experienced
several delays and setbacks. Given the sheer scale of the Belt and Road
Initiative and how many large projects it encompasses, hold-ups,
cancellations and failures are to be expected. But the causes of delays,
in some cases a result of increased skepticism and resistance to
China's strategic aims, will continue to shape the future development of
the Belt and Road Initiative.
The Big Picture

China's ambitious Belt and Road Initiative, formally announced in 2013,
has revived the country's ancient concept of the Silk Road. Stratfor has
closely tracked the development of this continent-spanning project, and
in 2017 we published a four-part series discussing the underlying
motivations behind this grand initiative — and the challenges it faces.
Now that the Belt and Road Initiative has entered its fifth year, we're
taking the time to examine the current state of the project and how its
challenges will impact the way we analyze the initiative in the coming
years.

Strategic Partnerships

Though one of Beijing's stated goals is to foster inclusive Eurasian
integration with the Belt and Road Initiative, its scheme so far has
focused on the developing world, particularly countries in Central and
Eastern Europe, South and Southeast Asia and Central Asia. It has
achieved only limited success drawing developed states, such as Japan,
and core European powers into the Belt and Road project. After all,
though they may share business interests with China, they also maintain a
strong and growing skepticism about Beijing's means of increasing its
competitiveness and its agenda for strategic expansion on the global
stage.

According to a survey covering primarily emerging and transitional
economies, Chinese financing — such as the Silk Road Funds and the Asian
Infrastructure Investment Bank — provides a more significant boost to
the majority of Belt and Road countries than their own domestic
financing or even, in many cases, the International Monetary Fund, the
World Bank and other international financing institutions.

China has many reasons for focusing on developing nations with strategic
positions. And the developing countries themselves, which in many cases
have weak economic foundations and governance, have been extremely
welcoming to the Belt and Road Initiative. Many of these countries — 11
of which have been identified by the United Nations as the world's least
developed, such as Laos, Tanzania and Djibouti — have major
infrastructure deficits but are eager to avoid the kind of restrictive,
strings-attached financing offered by Western institutions. Since
China's approach to funding emphasizes non-interference and is generally
unconditional and indiscriminate of regime, Beijing has achieved more
access and goodwill than is usually given to its Western competitors.
China's methods to draw these smaller countries into its Belt and Road
framework also offer them a way to leverage their strategic positions
and balance regional powers such as Russia, the European Union and
India.
Domestic Complications

China's aspirations with the Belt and Road Initiative have increasingly
been constrained by its own approaches and strategic objectives. Though
the Belt and Road gained great success in the developing world,
challenges over financing capabilities and political instability in the
recipient states have repeatedly caused delays and even cancellations.
This has been the case with several transportation and energy projects
in countries such as Kazakhstan, Bangladesh, Myanmar and Pakistan.
Beijing also had the unlikely hope that it could link several war-torn
states, such as Afghanistan and Yemen, but that will certainly not
happen in the foreseeable future.

Moreover, China's partnership and perceived support for partner
countries' ruling regimes have led to domestic political polarization,
opposition and international criticism. In some cases, leaders of these
states have used the Belt and Road Initiative in service of their
domestic political agendas, leveraging Beijing's international clout to
further their own international interests. And more significantly,
corrupt governments have used Chinese funds for their own personal and
political benefit.

Political corruption and instability have not only invited judgment but
have also put Belt and Road projects at risk of delay. In Malaysia, for
example, a game-changing May election turned several China-backed
infrastructure projects into centerpieces of the political discourse.
The new ruling power in Kuala Lumpur aims to investigate unscrutinized
investments as a means to not only delve into the corruption of the
former government but to reduce its debt burden. Although Beijing's
policies are mostly to blame for such complications, China has also been
frustrated by the liabilities caused by corrupt regimes. For instance,
despite early investment, China has had to hold back some of its
projects in politically risky countries such as Djibouti and Venezuela.

Finally, China's eagerness to draw in partner countries provides these
governments with leverage as they attempt to win investment from China's
rivals. Countries such as Thailand, Indonesia and some South Asian
states, in particular, have been able to encourage Japan and India to
compete with China over railways and hydropower projects at home,
dampening Beijing's objective of becoming the most influential regional
power.
Debt Concern, or Debt Strategy?

China's approach to debt financing in key strategic projects has also
led to pushback, mainly over Beijing's level of influence. For example,
the East Coast Rail Link in Malaysia and the deep-water Kyaukpyu port in
southern Myanmar are currently under review by the recipient
governments, which are already critical of Beijing's goal of securing
supply routes other than the Strait of Malacca. Like Malaysia, Myanmar
is concerned about the possibility of ending up in a "debt trap," where
China holds disproportionate control over the nation's economy. After
all, the $9 billion Kyaukpyu project is equivalent to 14 percent of
Myanmar's gross domestic product. As a result, the country is fearful
that China could ultimately exert its influence in order to gain
ownership of the strategically important Kyaukpyu port.

Myanmar's concern is not unfounded. Both Sri Lanka and Pakistan —
governments struggling with debt repayment and financing negotiations —
have entered into "debt-for-assets" land-lease agreements with Chinese
companies. In Sri Lanka, the Hambantota Port is now leased for 99 years,
while areas around the Gwadar Port in Pakistan are leased for 43 years.
In other states that already have high external debt or rely
excessively on direct Chinese investment — such as Djibouti, Laos,
Tajikistan, Kyrgyzstan and Montenegro — Beijing has used different forms
of debt relief or forgiveness measures, in some cases resorting to
acquiring the recipient country's natural resources or long-term oil
contracts to offset the loans. And speculation is rising over whether
China will leverage its financing of strategic deep-water ports in
countries like Myanmar and Djibouti to gain an advantage in the Indian
Ocean supply routes. Just recently, China established its first overseas
naval base in Djibouti.

Confronting the Core Powers

There is a growing wariness of China's strategic intent and expanding
influence with the Belt and Road Initiative. Beyond the concerns of
developing states, China's strategic rivals and powers throughout the
developed world maintain a strong, if not growing, resistance to the
project. Though core regional powers such as India, Russia and some
European countries share business interests with China, they also
maintain a strong and growing skepticism about Beijing's means of
increasing its competitiveness. And beyond that, China's hidden agenda
for strategic expansion on the global stage.

Despite India's tactical recalibration to ease its tense relationship
with China, New Delhi remains vehemently opposed to the China-Pakistan
Economic Corridor. This is seen by India as part of Beijing's strategy
to encroach on the subcontinent and could potentially undermine New
Delhi's claims to the contested Kashmir region. Indeed, India's
opposition has factored significantly in some South Asian states'
strenuous geopolitical balance. For instance, last year Nepal scrapped a
$2.5 billion Budhi Gandaki hydropower project, because of Indian
concerns.

In Europe, core EU members such as Germany and France have found
Beijing's outreach in Central and Eastern Europe to be more competitive
than cooperative, viewing the project as an attempt to dilute the bloc's
rule and agenda. This led to ongoing criticism and increased scrutiny
over Chinese investment and projects in Eastern and Central Europe. In
particular, the proposed railway between Budapest and Belgrade — a key
piece of Beijing's strategy to link to the Mediterranean port of Piraeus
— is under review.

Where China's outreach has received some success in the developed world
is in Russia and, to some extent, Japan. Initially suspicious of the
Belt and Road Initiative, Russia has grown more amiable as it recognizes
how Chinese investment can benefit its own economy and foster
development in Central Asian countries over which it exerts significant
control. Moscow has begun supporting and even participating in some Belt
and Road projects. Most recently, it entered into a co-financing
agreement with China for close to 70 projects under its own Eurasian
Economic Union, a move that will greatly ease the barriers to Beijing's
investment in some Eastern European and Central Asian countries as well
as the Arctic.

Japan, for its part, continues to refrain from openly endorsing the Belt
and Road Initiative. But in more tacit ways, the Japanese government is
working to encourage its companies to participate in some of China's
projects. This is especially true in areas such as Central Asia and
Africa, where Tokyo hopes to boost Japanese corporations' waning
overseas presence.
Looking Forward

Despite these successes, Beijing's ambitious outreach will continue to
fuel skepticism, suspicion and resistance among the core powers and
complicate its agenda, especially as it works to hedge against increased
pressure from the United States. And China has even inadvertently
encouraged loose regional blocs to counter it. Japan and India, for
instance, have begun working on an alternative to the Belt and Road
Initiative on the African continent, participating in a U.S.-led
proposal to establish a quadrilateral framework for infrastructure
investment. Elsewhere, Australia is pledging an extensive campaign of
aid, trade and diplomacy in the South Pacific, hoping to regain the
position it has lost to China in its traditional backyard.

The reality is that none of these countries' proposals can outdo China's
enormous and well-funded infrastructure plan. They lack China's
capital, human resources and moral flexibility. For participating
countries, the long-term benefits of Chinese investment and
infrastructure construction in many ways outweigh the risks. So, while
investors should be aware that China will continue to experience
setbacks in its Belt and Road projects, the initiative as a whole is
still moving along relatively successfully, as are Beijing's
expansionary aspirations.